Just to review, we experienced a near-Great Depression in 2008 when the real estate market collapsed after fraudulent and near fraudulent mortgage lending, home buying and selling drove prices to unsustainable heights. Consequently, we have record numbers of delinquent mortgages, record numbers of foreclosures, record numbers of underwater mortgages, record numbers of strategic defaults and short sales. Foreclosed properties are leading the market and setting home prices nationwide. At some point early in the year, the large mortgage lenders decided that the only way to create some stability in residential real estate pricing would be to tightly manage foreclosure inventory and the timing of putting homes on the market. The first step would be to foreclose on every home in default as quickly as possible. The banks set up foreclosure mills to process foreclosures at lightning speed. In states without judicial foreclosure requirements, [link=http://www.housingwire.com/2010/10/12/record-number-of-foreclosures-in-washington-oregon-in-september]foreclosures quickly ramped up to unprecedented levels[/link]. In states with judicial foreclosure, efforts to circumvent the judicial process were implemented, including legal lobbying efforts and outright fraud to circumvent the process of documenting an involuntary change in property title. As states caught on to what was happening and the level of fraud necessary to process thousands of mortgage claims in a single day, some of the banks took preemptive action to investigate their own foreclosure activity. And then the media finally caught on. Now as many as 40 states may begin investigating foreclosure practices if they haven't already and even president Obama has recognized how big this story is and has called for a national moratorium on foreclosures. It's the residential real estate version of the gulf oil spill, with the difference that criminal activity is going to be easy to prove. At the very least there are going to be tens of thousands of notarized affidavits fraudulent, criminally signed by bank representatives attesting to their due diligence in reviewing the mortgage, the property in question and the borrower's delinquency. There is no conceivable way that this does not constitute a criminal conspiracy on a massive scale. And yet... As Low has often posted, these foreclosures are necessary. By the millions, people are camping out in homes they no longer own. The financial health of the banking sector is going to remain murky until all these foreclosures are processed. So, what to do? What I would propose is a two year moratorium on mortages and a legislatively mandated write down of all underwater mortgages down to the real market price of the home in question, accompanied by a financial means test of the homeowner to be completed within this two-year period. If the homeowner in question cannot afford the payments after the mortgage writedown as determined by the objective means testing, or determines subjectively that s/he will not be able to afford the payments, then the bank forecloses immediately and the owners are evicted. Banks are not going to recover more than the actual value of the home, minus all the costs associated with pursuing foreclosures. This process would allow the banks to write off the bad loans at a predictable rate and let the housing market find a price bottom within a predictable time frame. Unfortunately, it will have to come with some kind of taxpayer funded guarantee to limit bank losses, and there should also be some kind of homeowner fees so that they take some kind of financial hit and don't get an outright "free" mortgage writedown. The voluntary system for mortgage writedowns as implemented by the Obama administration has been a failure. But some version of my plan is a legitimate way out of this mess that doesn't trample all over the system of property law that we have in place. Without it, more banks will fail, and the mortgage foreclosure mess will take a decade to work through.